UK and Europe
European stocks rose on Tuesday, buoyed by a rise in oil prices and a cautious Federal Reserve Chair Janet Yellen who signaled policy tightening was likely to stay on hold in the short run. A policy of easy money from the Fed is positive for equities, whilst any resulting dollar weakness is supportive of commodity prices.
A late bout of weakness in mining shares left the FTSE 100 significantly underperforming other European stock benchmarks. A plunge in copper prices is at odds with the oil rally and making traders a little nervous after the big run up mining shares have had in the last week. Copper futures sunk over -3% after the biggest two-day increase in copper stockpiles monitored by the LME since 2004.
Oil and gas contributed the most to the FTSE’s gains after crude oil closed at a new 2016 high and Royal Dutch Shell (LON:RDSa) announced a further cut to spending plans and more expected savings from its merger with BG Group. Shell’s conservative spending plans go some way to allay concerns that the cost of the merger with BG Group will mean an eventual cut to the dividend.
Shares of Sports Direct (LON:SPD) jumped over 5% after founder Mike Ashley navigated a grilling from MPs over working practises at the sports retailers warehouses. Mr Ashley’s cheeky-chappy charm offensive proved quite effective. He conceded on all political hot potatoes including the minimum wage and zero-hours contracts whilst vague promises with unspecified deadlines to fix other issues are unlikely to mean any significant increase in unit labour costs.
US
US stocks opened strongly, building on the highest close this year for the S&P 500 after supportive comments from Fed Chair Yellen, with news that Hillary Clinton has secured enough delegate support to become the Democratic Party presumptive nominee.
The Dow Jones gained 75 points on the open, with gains in Exxon (NYSE:XOM) and Chevron (NYSE:CVX) leading the pack in a positive read-across from news out of Shell and the fresh 2016 highs in US oil prices.
Mrs Clinton has been the clear favourite in the Democratic race from the beginning and as Wall Street’s chosen candidate, there will be some relief once she’s in position to square up to Republican Donald Trump.
Ms Yellen’s omission of the phrase "in the coming months" for when the next rate move can be expected was taken as a signal that the June and probably July FOMC meetings are off the table. Even if US data improved, there’s probably not enough time to prepare the markets for a July hike. In her speech in Philadelphia, Ms Yellen was generally optimistic on the US economy, saying gradual rate rises were appropriate and that she was not attaching too much significance to any single monthly report. The Fed Chair appears to think the awful May payrolls report is an aberration but wants more data to support that thesis before hiking rates.
Shares of embattled Canadian pharmaceuticals firm Valeant Pharmaceuticals (NYSE:VRX) dropped 15% on the open after it slashed full-year profit expectations.
FX
The British pound appreciated sharply on Tuesday after two polls showed a narrow one-point lead for the Remain campaign. Cable jumped 200 pips, back towards its highest levels this year before the gains quickly faded with the price spike attributed to a “fat finger” trade. Whilst the polls swing back and forth cable may be confined within its current range of 1.43 – 1.47.
The Australian dollar was the top FX gainer after the RBA kept interest rates on hold and signalled it was unlikely to shift its policy stance in the near future. The relative hawkishness of the RBA caught traders expecting a rate cut offside, causing an abrupt bout of short-covering. The decision makes the unexpected rate cut in May all the more confounding. If the RBA is stepping back again, then rising commodity prices should support the Aussie. AUD/USD struck a 22-day high on Tuesday.
Commodities
Supply disruptions in Nigeria helped the price of oil build on its latest seven-month high with further gains on Tuesday. The rally in crude looks stretched but the price action, particularly following the bad news out of OPEC, suggests a desire to push beyond $50 per barrel.
The price of gold dipped below its recent floor at $1240 before springing higher, suggesting buying interest despite the massive run-up after Friday’s weak US payrolls report. Downside in gold could be limited since the lack of safe-haven demand is offset by the desire for hard assets whilst the Fed keeps policy easy.
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